What happens after a 'V-shaped bottom' of 10% in 18 days?
In the image before you, a very interesting chart.
This is a fascinating analysis summarizing what happened to the S&P 500 after rare instances where the index experienced a sharp and rapid 10% decline within 18 days, followed by a sharp reversal upwards, known as a V-shaped bottom.
These events are rare, having occurred only 11 times since 1970, and they show us what happens after moments of panic that turn out to be golden opportunities.
What do the data show?
Out of the 11 times a 'V signal' was received, in 9 cases (82%) the market was higher after one year.
The annual average after the signal: a 16.9% increase.
After six months, an average increase of 7.7%, with an 82% chance of an increase.
Only in two cases did the market decline a year later, 2001 and 2002, two years when the tech bubble burst.
The most interesting data point?
2025-05-05 joined this list of rare events, right now!
What does this historical chart show?
Historically, sharp moments of fear with quick recoveries have yielded high returns for those who entered.
Most losses were temporary; even when we saw short declines initially (week-month), returns after 6-12 months were positive in most cases.
Timing a bottom is almost impossible.
Will history repeat itself?
Of course, there is no certainty and nothing is predictable, but these past data points are certainly interesting.